Nike (NYSE:NKE) has long had a reputation for acting like a technology company, although its growth rate is more akin to that of Cisco Systems (NASDAQ:CSCO) than Amazon.com (NASDAQ:AMZN).
But if you act like a tech stock, investors may treat you as a tech stock. Investors have been doing just that lately, tossing out Nike like it was Microsoft (NASDAQ:MSFT), the shares down almost 13% from their Sept. 21 peak, opening for trade November 15 at around $75.
But that negative run may be overdone. Nike isn’t really a technology company. It just uses technology the way it does basketball, to sell its products and to sell its image. Its “noise cancelling” line doesn’t mean it has silent shoes, but shoes endorsed by athletes who silenced critics.
Nike, in other words, is a fashion name, not a technology name.
Image Is Everything for Nike Stock
Nike long ago accomplished its goal of turning athletic wear into fashion, and now acts like a fashion leader, focusing on maintaining that image. Despite the recent fall, shares are still up about 20% during 2018.
An ordinary visage can frequently be found behind a façade of beauty, and Nike does have its share of problems.
The biggest may be executive turnover. The company recently pushed out several executives, and promoted many women, in the wake of sexual harassment allegations. The shares also sold off after the company made Colin Kaepernick the face of its fall advertising campaign, although its instincts there proved right and the stock quickly recovered.
Nike is also less visible at Amazon, after signing a highly publicized deal to sell gear there last year. But observers say that may be intentional, with the agreement including Amazon cracking down somewhat on counterfeits and unauthorized sellers.
Finally, Nike faces the continuing challenge of Adidas (OTCMKTS:ADDYY), which recently passed Nike’s own Jordan Brand as the second-leading shoe line and whose North American sales have been rising at 28%, almost three times the rate of Nike.
Better Days Coming for NKE
That challenge may fade now, with Nike having gotten through a trial over college basketball recruiting relatively unscathed and the NBA’s minor league now offering $125,000 “Select Contracts” to high school stars as an alternative to attending college.
The fall in the shares coincided with its most recent earnings report, showing Nike with $150 million more revenue than the previous quarter, $9.95 billion, and net income of $1.09 billion, 67 cents per share fully diluted. The dividend was raised to 20 cents, gross margins rose 50 basis points to 44.2%. Year over year, sales are growing at 10%, and earnings at double that rate.
Those results were priced into the stock, analysts said, and profit-taking ensued. Estimates for the current quarter, to be reported at Christmas, are for profits of 45 cents per share on revenue of $9.17 billion. While down from the summer, they would still be up from the $8.55 billion of revenue in last year’s fall quarter.
The Bottom Line
Nike has ridden sport to the center of fashion by nurturing athletes into the limelight and capitalizing on their images to sell its products. This is true for fake athletes as well as real ones.
Nike remains sure-footed in this regard. While rivals take risks to compete, Nike gets to choose its own path, and its corporate instincts usually wind up on the right side of the financial ledger.
Nike has proven through its recent travails that it remains a great long-term holding. It’s not a tech stock, and it’s not really a fashion stock. It may be the best marketing company in America.
Dana Blankenhorn is a financial and technology journalist. He is the author of a new mystery thriller, The Reluctant Detective Finds Her Family, available now at the Amazon Kindle store. Write him at danablankenhorn@gmail.com or follow him on Twitter at @danablankenhorn. As of this writing he owned shares in MSFT and AMZN.
